ConocoPhillips to suspend San Juan Basin drilling

ConocoPhillips has announced it will suspend San Juan Basin drilling. (File photo)

FARMINGTON — ConocoPhillips on Wednesday said the company will temporarily suspend its drilling program in the San Juan Basin, ceasing operation of three rigs that were exploring for natural gas.

“We thought at this time it would be a good decision to make, and suspend it and watch natural gas prices,” said Jim Lowry, a Houston-based ConocoPhillips spokesman.

He added, “Again, I want to stress the temporary nature of it. We'll restart as soon as possible, and that's heavily dependent on the price of natural gas.”

ConocoPhillips does not plan to lay off employees, Lowry said. The company has about 600 workers in the Farmington area and has two large office complexes, one in Farmington and the other on U.S. Highway 64 between Farmington and Bloomfield.

Approximately 20 employees may be transferred internally, and another 20 could be transferred to other ConocoPhillips locations outside the San Juan Basin. Local workers were told of the suspension Tuesday.

ConocoPhillips will continue to operate its 10,000 San Juan Basin wells.

“The production from all of that will continue,” Lowry said.

ConocoPhillips was New Mexico's most-prolific natural gas producer in 2012. In the San Juan Basin, ConocoPhillips produces more than 1 billion cubic feet of natural gas and oil per day.

The company's suspension leaves its San Juan Basin drilling contractor, Aztec Well Servicing, scrambling for new work.

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“Obviously there's a major impact to our operation,” said Jason Sandel, Aztec Well executive vice president. “We are actively looking for replacement contracts both in and out of the San Juan Basin. This is a very difficult time for natural gas processors just because natural gas prices are so low.”

If Aztec Well is unable to find contracts for the three rigs, 75 to 100 jobs could be cut, Sandel said. The local contractor employs about 750 people.

“If we can't find work for the rigs, then the employees will have to be displaced, which is why we're focused so hard on getting contracts right now,” Sandel said.

Sandel praised ConocoPhillips for continuing to drill in the basin longer than some other producers.

Many drillers have shifted their rigs elsewhere as natural gas prices remain depressed.

Natural gas was trading Wednesday at $4.09 per MMBtu on the New York Mercantile Exchange. While prices have rebounded modestly in recent weeks, they remain far below prices seen a few years ago.

ConocoPhillips' decision to discontinue drilling leaves only two rigs operating in the basin, one by Encana Corp. and the other by XTO Energy.

Encana Corp., a Canadian company that is exploring the potential of producing oil from the Mancos Shale, is preparing to launch a second rig, Sandel said.

“It gives you a pretty grim picture of activity levels in the area,” he said. “We're looking at two or three rigs operating in the San Juan Basin for the rest of 2013.”

At the height of drilling in October 2008, the basin had 47 drilling rigs, Sandel said.

Prices have remained low because of a supply glut for natural gas. Sandel, who also serves as a Farmington city councilor, is pushing for other uses for natural gas such as gas-fired power plants and vehicle fleets.

Falling natural gas production has rippled throughout the basin. Natural gas production in northwest New Mexico fell 4.2 percent in 2012 to its lowest level in 20 years, according to the state Oil Conservation Division.

Sandel on Wednesday called for a response to the economic malaise.

“It's very similar to a base closure, and we ought to have something similar to a base closure commission immediately to look at what we can do as a community to save jobs,” he said.

Oil exploration of the Mancos shale has spurred optimism in Farmington. Encana Corp. has drilled at least 12 wells in the basin since the beginning of 2012, and others are evaluating a potential play. The Mancos shale was the topic of a major convention last week at San Juan College in Farmington.Still, exploration of the oil play has not fully compensated for the long, steady slide in natural gas production.

“I continue to stress and have for some time that the market for natural gas drilling is very weak right now across the United States, and while there is some potential in the Mancos, it is a distant potential,” Sandel said. “While many are pointing to the Mancos as the saving grace for the basin, what we need to be looking at in the basin and as a nation is fixing the demand problem for natural gas.”Chuck Slothower can be reached at 505-564-4638; cslothower@daily-times.com. Follow him on Twitter @DTChuck.